Sunday, April 28, 2013

Zynga (ZNGA)

BUY signal the week of 2.4.13 at $3.43. My first stop was $2.20, so my risk (R)/share was $1.23. Closed Friday at $3.35 with a $2.47 stop. My new stop for this week is $2.46. The percentage loss on this trade is -2.3%, and the reward-to-risk ratio is -$0.08/$1.23 = -0.06.

History (beginning in 2013):
Winning Trades: 0 | 0.0% | +$0.00/share avg.
Losing Trades: 1 | 100.0% | -$0.08/share avg.
Average Trade: -2.3% | -$0.08/share | Reward-to-Risk (R): -0.06
Compound Annual Growth Rate (CAGR): -10.6% 
Alpha% (weekly): -0.47%

Alpha calculations:
Total # of weeks (1 trade): 11
Mean Trade Returns (weekly): -0.09%
Mean S&P 500 Returns (weekly): +0.39%
Risk-Free Rate (baseline assumption): 0.0%
Beta (calculation):0.98
Alpha (calculation): -0.47%

Precision Castparts (PCP)

BUY signal the week of 9.13.10 at $126.68. My first stop was $103.19, so my risk (R)/share was $23.49. Closed Friday at $187.47 with a $173.59 stop. My new stop for this week is $173.83. The percentage gain on this trade is +48.0%, and the reward-to-risk ratio is +$60.79/$23.49 = +2.59.

History (beginning in 2003):
Winning Trades: 3 | 100.0% | +$64.61/share avg.
Losing Trades: 0 | 0.0% | -$0.00/share avg.
Average Trade: +212.0% | +$64.61/share | Reward-to-Risk (R): +13.51
Compound Annual Growth Rate (CAGR): +31.6%
Alpha% (weekly): +0.45%

Alpha calculations:
Total # of weeks (3 trades): 423
Mean Trade Returns (weekly): +0.69%
Mean S&P 500 Returns (weekly): +0.21%
Risk-Free Rate (baseline assumption): 0.0%
Beta (calculation): 1.16
Alpha (calculation): +0.45%

Mastercard (MA)

BUY signal the week of 10.18.10 at $242.64. My first stop was $202.75, so my risk (R)/share was $39.89. Closed Friday at $535.33 with a $489.16 stop. My new stop for this week is $487.92. The percentage gain on this trade is +120.6%, and the reward-to-risk ratio is +$292.69/$39.89 = +7.34.

History (beginning in 2006):
Winning Trades: 4 | 80.0% | +$108.62/share avg.
Losing Trades: 1 | 20.0% | -$35.79/share avg.
Average Trade: +54.9% | +$79.73/share | Reward-to-Risk (R): +2.85
Compound Annual Growth Rate (CAGR): +31.2%
Alpha% (weekly): +0.67%

Alpha calculations:
Total # of weeks (5 trades): 266
Mean Trade Returns (weekly): +0.81%
Mean S&P 500 Returns (weekly): +0.12%
Risk-Free Rate (baseline assumption): 0.0%
Beta (calculation): 1.15
Alpha (calculation): +0.67%

LinkedIn (LNKD)

BUY signal the week of 1.7.13 at $118.00. My first stop was $96.40, so my risk (R)/share was $21.60. Closed Friday at $187.76 with a $148.56 stop. My new stop for the coming week is $147.87. The percentage gain on this trade is +59.1%, and the reward-to-risk ratio is +$69.76/$21.60 = +3.23.

History (beginning in 2013):
Winning Trades: 1 | 100.0% | +$69.76/share avg.
Losing Trades: 0 | 0.0% | -$0.00/share avg.
Average Trade: +59.1% | +$69.76/share | Reward-to-Risk (R): +3.23
Compound Annual Growth Rate (CAGR): +400.4%
Alpha% (weekly): +2.38%

Alpha calculations:
Total # of weeks (1 trade): 15
Mean Trade Returns (weekly): +3.33%
Mean S&P 500 Returns (weekly): +0.49%
Risk-Free Rate (baseline assumption): 0.0%
Beta (calculation): 1.93
Alpha (calculation): +2.38%

Facebook (FB)

BUY signal the week of 11.26.12 at $28.00. My first stop was $19.07, so my risk (R)/share was $8.93. Closed Friday at $26.85 with a $25.48 stop. My new stop for the coming week is $25.55. The percentage loss on this trade is -4.1%, and the reward-to-risk ratio is -$1.15/$8.93 = -0.13.

History (beginning in 2012):
Winning Trades: 0 | 0.0% | +$0.00/share avg.
Losing Trades: 1 | 100.0% | -$1.15/share avg.
Average Trade: -4.1% | -$1.15/share | Reward-to-Risk (R): -0.13
Compound Annual Growth Rate (CAGR): -9.9%
Alpha% (weekly): -0.86%

Alpha calculations:
Total # of weeks (1 trade): 21
Mean Trade Returns (weekly): -0.07%
Mean S&P 500 Returns (weekly): +0.54%
Risk-Free Rate (baseline assumption): 0.0%
Beta (calculation): 1.46
Alpha (calculation): -0.86%

Deckers Outdoor (DECK)

BUY signal the week of 2.4.13 at $43.56. My first stop was $29.97, so my risk (R)/share was $13.59. Closed Friday at $54.31 with a $46.46 stop. My new stop for the coming week is $45.34. The percentage gain on this trade is +24.7%, and the reward-to-risk ratio is +$10.75/$13.59 = +0.79.

History (beginning in 2005):
Winning Trades: 3 | 75.0% | +$29.76/share avg.
Losing Trades: 1 | 25.0% | -$16.82/share avg.
Average Trade: +117.6% | +$18.12/share | Reward-to-Risk (R): +3.45
Compound Annual Growth Rate (CAGR): +35.0%
Alpha% (weekly): +0.86%
 
Alpha calculations:
Total # of weeks (4 trades): 275
Mean Trade Returns (weekly): +1.02%
Mean S&P 500 Returns (weekly): +0.10%
Risk-Free Rate (baseline assumption): 0.0%
Beta (calculation): 1.62
Alpha (calculation): +0.86%

Crocs (CROX)

BUY signal the week of 2.19.13 at $15.43. My first stop was $12.46, so my risk (R)/share was $2.97. Closed Friday at $15.93 with a $12.98 stop. My new stop for this week is $12.73. The percentage gain on this trade is +3.2%, and the reward-to-risk ratio is +$0.50/$2.97 = +0.17.

History (beginning in 2006):
Winning Trades: 3 | 75.0% | +$13.77/share avg.
Losing Trades: 1 | 25.0% | -$5.43/share avg.
Average Trade: +156.7% | +$8.97/share | Reward-to-Risk (R): +2.73
Compound Annual Growth Rate (CAGR): +44.8%
Alpha% (weekly): +1.35%

Alpha calculations:
Total # of weeks (4 trades): 199
Mean Trade Returns (weekly): +1.69%
Mean S&P 500 Returns (weekly): +0.20%
Risk-Free Rate (baseline assumption): 0.0%
Beta (calculation): 1.69
Alpha (calculation): +1.35%

Saturday, April 27, 2013

Salesforce.com (CRM)

BUY signal the week of 2.21.12 at $35.91 (adjusted for 4.18.13 4:1 stock split). My first stop was $27.13, so my risk (R)/share was $8.78. Closed Friday at $40.71 with a $38.87 stop. My new stop for the coming week is $39.35. The percentage gain on this trade is +13.4%, and the reward-to-risk ratio is +$4.80/$8.78 = +0.55.

History (beginning in 2004 and adjusted for 4.18.13 4:1 stock split):
Winning Trades: 4 | 80.0% | +$7.72/share avg.
Losing Trades: 1 | 20.0% | -$0.17/share avg.
Average Trade: +66.0% | +$6.14/share | Reward-to-Risk (R): +1.93
Compound Annual Growth Rate (CAGR): +28.0%
Alpha% (weekly): +0.53%

As you can see, I've added alpha to the mix just to see how I've traded Salesforce.com over the years on a risk-adjusted basis. I use weekly OHLC data to trade a long-term trend-following system, so it seems appropriate to measure alpha on a weekly basis(?)

For my calculations, I've captured (and combined) the weekly returns for all of my Salesforce.com trades and compared them to the corresponding weekly S&P 500 Index returns. Hopefully this yields a meaningful number. After 10+ years of trading, I have to confess that this is my first real exploration of alpha, so I may be way off base. Like a lot of things (including this blog), it's a work in progress. 

My first thought was to share my calculations for alpha via Google Docs, and as much as I'm sure everyone would like to examine 370 lines of data, I think I'll just lay out the summary results here:

Total # of weeks (5 trades): 363
Mean Trade Returns (weekly): +0.75%
Mean S&P 500 Returns (weekly): +0.16%
Risk-Free Rate (baseline assumption): 0.0%
Beta (calculation): 1.39
Alpha (calculation): +0.53%   

Obviously, my assumption for the Risk-Free Rate is 0%, and I used that primarily for the sake of simplicity. But I also did it to establish what I consider more or less a baseline result. If I change the Risk-Free Rate to 1%, then my alpha increases to +0.92%. 

On the flip side, since beta is a multiplier in my calculations, my alpha would get worse when I have a beta less than 1.